If you're old enough, or have read the right books, you know that the dot-com crash of 2000 was a really big deal. It was a major cause of the economic downturn that is still a problem today. Nervous investors inevitably saw signs of dot-com crash 2.0 when tech company stocks took a hit last week, dragging down the stock market to new lows for the year. Don't panic just yet, though: Biotech and the current Internet economy are pretty different from the worthless dot-coms of 14 years ago.
The dot-com crash of 2000 traumatized plenty of investors and companies, many of whom were caught unaware and vowed never to be the victim of that kind of crash again. Current investors doubtless felt some of the same fear watching biotechnology and Internet-based companies fall at the end of the week – far enough to pull down the entire stock market and give the Nasdaq index its worst day since 2011, falling 3.1 percent.
In this case, biotech in particular took some hard knocks, as investors, worried about the high-risk nature of drug research, apparently grew skittish. But if any kind of scientific or technological stocks start to fall, they'll likely bring down prices of not only brand-new startups but even seemingly unstoppable companies like Google.
For newer startups, this could be a big problem if venture capitalists decide that tech is overvalued and it's time to start winding down or even stopping investment in tech startups for a while. The startup boom, not to mention the big IPOs, could very quickly come to a halt if enough investment firms made that call. Even the hint that the money train might stop running has startups that just raised plenty of capital asking their backers for more, just in case that's not an option down the line. The cash cushion might soon be necessary and make the difference between a success and an almost-ran that falls apart from lack of ready cash.
This may all be a moot point. For every person who has been certain that a slightest shift in the economic breeze will pop the delicate tech bubble, there's another who believes that the current market has rock-solid fundamentals impervious to all but the most dire catastrophes. To them, the dip last week is just a minor readjustment to some overheated prices, not the first tremors of a collapse.
Of course, stock markets are just as much a matter of feelings and instinct as numbers and graphs. Trying to predict it, especially in terms of major shifts, is difficult to the point of absurdity and can mostly only be understood in retrospect. Investors and startups will just have to hope that history isn't about to repeat itself.
Image by Luis Villa del Campo via Flickr
